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total liabilities of a debtor for purposes of assessing solvency. fn 45 This is true whether or not the solven-
cy analysis is performed under a going concern or a liquidation premise of value. However, exceptions
to this approach may exist. For example, some practitioners have argued that nonrecourse debt of sub-
sidiaries within a substantively consolidated group of companies should be limited to the value of the as-
sociated collateral when assessing the solvency of the substantively consolidated group.

Deferred taxes, deferred revenue, and other similar liabilities should be evaluated to assess whether, or
to what degree, such liabilities should be appropriately considered given the premise of value, standard
of value, and valuation approaches employed. As referenced in the "Asset (Asset-Based) Approach" sec-
tion, unliquidated, contingent or disputed assets and liabilities of the debtor should be evaluated for in-
clusion in the balance sheet test.

Retrojection and Projection

Generally, an assessment of solvency or insolvency must be made as of the specific date of the transfer
at issue. Sometimes, however, it may not be practical to develop an assessment of value on such a date.
For example, financial statements are not typically generated, and are therefore not readily available, on
dates that fall in the middle of a month. Accordingly, courts will typically consider financial statements
and other evidence on a date before and a date after the transfer date as competent evidence of the debt-
or’s solvency or insolvency as of the transfer date. fn 46 The aforementioned approach, which is termed
retrojection and projection by the courts, essentially indicates that if "a debtor is shown to be insolvent
at a date later than the date of the questioned transfer, and it is shown that the debtor’s financial condi-
tion did not change during the interim period, insolvency at the prior time may be inferred from the ac-
tual insolvency at the later date." fn 47

Unreasonably Small Capital and Ability to Pay

In evaluating unreasonably small capital fn 48 and ability to pay debts, it is important to note the differ-
ences between them and how they are measured. An important difference is that for a company to have

fn 45 In In re Trans World Airlines, Inc. 134 F.3d. 188 (3d Cir. 1998), the Third Circuit held that the debt should be measured at its
face value and not its market value.

fn 46 See In re Coated Sales, Inc., 144 B.R. 663, 666 (Bankr. S.D. N.Y. 1992).

fn 47 See In re Arrowhead Gardens, Inc., 32 B.R. 296, 301 (Bankr. D. Mass. 1983).

fn 48 In some states, the local statute refers to sufficiency of assets. The U.S. Bankruptcy Code refers to sufficiency of capital (see
Bankruptcy Code Section 548(a)(1)(B)(ii)(II)). The language contained in the Bankruptcy Code clearly indicates that an analysis of a
debtor’s financial condition considers both assets and liabilities. This is because one of the definitions of capital (the term that appears
in Bankruptcy Code Section 548(a)(1)(B)(ii)(II)) is assets minus liabilities. Many state codes, on the other hand, make reference to
assets. Based on the following discussion, however, it is evident that the assessment of sufficiency of a debtor’s assets should be made
in relation to a debtor’s debts.

An assessment of whether "the remaining assets of the debtor were unreasonably small in relation to the business or transaction"
must be made in the context of claims against those assets (Missouri Revised Statutes Section 428.024.1). From a financial perspective
it does not make sense that, just because a business is large and has billions of dollars in assets, the remaining assets of a debtor are not
unreasonably small in relation to the business or transaction. Some of the largest businesses in the world with billions of dollars in
assets have experienced financial distress, become insolvent, and have filed for bankruptcy. This is because, among other things, there
is an excessive amount of debt with claims against those assets. On the other hand, some small businesses with few assets are highly
liquid and solvent because the assets of the business are financed exclusively with owners’ equity or capital. Accordingly, an assess-

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